1.

AFISCO v CA
(page 11 and 17)

FACTS:
1. 41 non-life insurance corporations formed themselves into a pool in
order to facilitate the handling of business contracted with
the
Munchener Ruckversicherungs-Gesselcraft (Munich), a non resident
foreign reinsurance company with which they executed reinsurance
treaties.
2. The pool of machinery insurers submitted a financial statement and filed
an Information Return for Organization Exempt from Income Tax.
3. From the said filing, the CIR assessed deficiency corporate taxes and
withholding taxes on dividends paid to Munich which were protested by
the insurance corporations.
4. CIR denied the protests and ordered the insurance companies to pay
deficiency income tax, interest and withholding tax.
5. CA ruled that the pool of machinery insurers was a partnership taxable as
a corporation and that the latters collection of premium on behalf of its
members, the ceding companies, was taxable income.
6. Hence, this petition.
Insurance companies argued that there was no partnership
because there was no common fund.
The pool was not and could no possibly have engaged in the
business of reinsurance from which it could not have derived
income from itself. Thus, if the pool could not earn profits, then it
is not partnership.
ISSUE: WHETHER THE POOL SHOULD BE DEEMED A PARTNERSHIP
THAT IS TAXABLE UNDER THE NIRC.
HELD: YES. THE POOL IS TAXABLE AS A CORPORATION
1. The pool had a common fund consisting of money and other valuables
that are deposited in the name and credit of the pool. This common funds
pays for the administration and operation expenses of the pool. Thus, the
common fund may consist of money and property made available to the
group for the purpose of engaging in profitable undertakings.
2. The pools work is indispensable, beneficial and economically useful to
the business of the ceding companies and Munich, because without it,
they would not have received their premiums.
The profit motive or business is therefore the primodial reason for
the pools formation. The fact that the pool does not retain any
profit or income does not obliterate an antecedent fact, that of the
pool being used in the transaction of business for profit.
3. Thus, partnership itself is not required to directly earn profits for as long
as the creation of the partnership is indispensable, beneficial and
economically useful to the partners and that the profit motive must have
been the primordial reason for the establishment of the partnership.
4. It is therefore sufficient that the partnership is tool useful for he creation
of profit even if such profit is not earned by the partnership itself.